Goals Drive Asset Allocation

CURRENT POSITION

Asset allocation should be driven by goal timelines rather than market movements. Long-term goals can be equity-heavy, short-term goals should be debt-focused, with a gradual equity-to-debt glide path in the last 3–5 years to manage sequence risk. Commodities should be held as a constant 5–10% of total long-term investable assets (excluding emergency cash), regardless of whether the portfolio is equity- or debt-heavy, because they hedge regime and inflation risk rather than fund specific goals.

KEY ASSUMPTIONS

• Time reduces equity risk over long horizons
• Sequence risk is the main threat near goal completion
• Commodities hedge uncertainty but do not generate long-term compounding returns

SUPPORTING EVIDENCE

• Historical equity returns outperform inflation over long periods while showing high short-term volatility
• Major drawdowns near withdrawal periods materially impact outcomes

OPEN QUESTIONS

• How much benefit commodities add after accounting for opportunity cost
• Optimal speed and structure of the equity-to-debt glide path
• Whether 5% or closer to 7–10% commodities is optimal across different inflation regimes

WANT TO EXPLORE DEEPER?

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